5 Reasons Credit Unions Worry About Risk-Based Capital
Credit union executives have expressed a host of concerns about the NCUA’s risk-based capital rule proposed at the agency’s January board meeting.
Under the proposed rule, a credit union with more than $50 million in assets is rated adequately capitalized if it maintains a risk-based capital ratio between 8% and 10.49%, and a net worth ratio of 6% to 6.99%. A risk-based capital ratio above 10.49% and a net worth ratio above 7% would designate a credit union as well capitalized. A risk-based capital ratio under 8% and net-worth ratio between 4% and 5.99% is considered undercapitalized.
1. Tougher standards than banks’
2. Growth Impact
David Osborn, president/CEO of the $1.4 billion Anheuser-Busch Employees’ Credit Union in St. Louis, said the 10.5% “well-capitalized” requirement under the proposal rule is a huge jump from the current level.
3. Interest Rate Risk
“Interest rate risk in the loan portfolio is ignored. Credit risk is not totally ignored but it’s not carefully calibrated,” said Denise Boutross McGlone, executive vice president and chief financial officer of the $2.2 billion Affinity Federal Credit Union in Basking Ridge, N.J.
4. The NCUA’s Risk-based Rule Calculator
“From an agency that makes a really big deal about reputation risk, I don’t understand why they are choosing to publish information on a proposal that gives the impression that our credit union is undercapitalized. It doesn’t make a lot of sense to me,” Holbrook said.
5. More Mergers
“I do think this [rule] will definitely increase the mergers. I don’t know but that may very well be the intent of NCUA – to speed up the mergers; to not have to supervise these undercapitalized credit unions,” said Cheryl Hubbeling, CEO of the $43 million Rapid City Telco Federal Credit Union in Rapid City, S.D.